carillion

[silver pigeon69]

30 minutes ago, Whitebridges said:

Disgusting state of affairs. 

Headlines:  Carillion runs vital services for the NHS , the Army  and is helping to build the HS2 rail link.

Carrillion has a £600m back hole in its pension scheme and £900m in debts.

it maintains 50k homes for the ministry of defence.

Emplys 43k staff worldwide . 20k are in Britain.

Main creditors are Barclays, Santander and HSBC.

 

I hope it burns and we realise that certain things need to to kept and managed in house and never contracted out to the fly boys. 

Good night.

How does a company have a pension deficit? Have they mis-used the funds that should have been in the pension? Or has the pension made bad investments?

[JohnfromUK]

3 minutes ago, Whitebridges said:

So what do you think of the whole debacle?

I think I have said my piece in the above; I would expect that failing to secure more loans, the company will enter liquidation - and its contracts will be 're-let' and taken up by a range of other companies/competitors.  I would not expect the government to use taxpayers money because much of Carillion's business was overseas/private sector anyway.  I would expect creditors to receive little or nothing.  I do not understand quite what the position is on the pension fund.

7 minutes ago, Whitebridges said:

My view is that it must never be repeated.

It is the nature of the business/commercial world that it will happen again ..and again .. and again  ......... and indeed it is like natural selection - the weakest must fail to ensure the future of the strongest.  The Government (HMG) have been giving additional contracts to the lowest bids - even though I understand it has been clear for some time that Carrillion has been in a poor financial state and represented a high risk of failure.  This underlines the fact the HMG (and the Civil Service) and not good at picking the right contractors - which almost certainly suggests they shouldn't be running the contracts themselves.  The fact is HMG usually let contracts to the "cheapest compliant bid" - and as the old saying goes, "buy cheap, buy twice".

[keg]

4 minutes ago, silver pigeon69 said:

How does a company have a pension deficit? Have they mis-used the funds that should have been in the pension? Or has the pension made bad investments?

I'd ask Gordon Brown firstly. Secondly, we are living longer, interest rates are low.

[silver pigeon69]

1 minute ago, keg said:

I'd ask Gordon Brown firstly. Secondly, we are living longer, interest rates are low.

We know this, so why didn't the people earning 6 figure sums and allow/calculate for it?

[keg]

3 hours ago, figgy said:

Should be left to fail. Other companies will pick up the work. I still can’t see why government isn’t building its own hospitals and looking after its own services. No profit margins needed for shareholders and any profit back into the coffers. 

How can they Figgy? Government doesn't own any thing, That's why in theory, Carillion or others are employed. The gov overseeing ( civil service?) any of our major capital projects is woeful.

[JohnfromUK]

2 minutes ago, silver pigeon69 said:

How does a company have a pension deficit? Have they mis-used the funds that should have been in the pension? Or has the pension made bad investments?

This mainly relates (I believe) to the "final salary" pension schemes (or defined benefit), now uncommon, but many legacy ones in place.

When a company grants an employee a pension amount based on his years of service and final salary, they invest money throughout his working career with the company to pay that pension.  This is the pension fund and pays the defined benefit.  The pension fund has trustees who are in charge of looking after and wisely investing those investments to ensure that there is enough money there to pay the estimated future commitments (i.e. the pensions promised) and in effect the pension fund carries the risk that there won't be enough money put away.  In recent times of low interest rates and poor annuity returns etc. MUCH more money is needed as investment to meet the commitments.  This 'extra' needed is the deficit. 

Those who are on a defined contribution type pension will build up a 'pot' based on the defined contribution which is usually a percentage of the salary.  When you retire, how much you get depends on how you can convert the 'pot' sum into monthly income, the traditional way being an annuity.  As we know, annuities are now giving very poor returns and many people will receive lower pensions than they hoped for as a result.  In this type of pension, the employee/future pensioner carries the risk.

I assume Carrillion has a defined benefit scheme that is (under present interest rates) underfunded to meet it's liabilities - hence the 'deficit'.

[keg]

2 minutes ago, silver pigeon69 said:

We know this, so why didn't the people earning 6 figure sums and allow/calculate for it?

I have no idea, i'd like to think they are currently and for new starters but historically? I am not an actuary, just a lowly sales bod.

 

This explains it better than i could:-

 

http://www.thisismoney.co.uk/money/pensions/article-1692321/Has-Labour-really-ransacked-our-pensions.html

[silver pigeon69]

11 minutes ago, keg said:

I have no idea, i'd like to think they are currently and for new starters but historically? I am not an actuary, just a lowly sales bod.

 

This explains it better than i could:-

 

http://www.thisismoney.co.uk/money/pensions/article-1692321/Has-Labour-really-ransacked-our-pensions.html

Interesting article,

Thanks

[JohnfromUK]

21 minutes ago, silver pigeon69 said:

How does a company have a pension deficit? Have they mis-used the funds that should have been in the pension? Or has the pension made bad investments?

The main 'top level' reasons (and many funds have deficits at present) is that the funds have failed to meet the projected growth expectations - and that more money is needed to generate monthly income than was expected.  There are various reasons underlying this are;

• Yields - interest rates (and related bond yields) are historically at their lowest EVER
• Growth was much reduced when the (labour) Government started drawing money out of peoples pension funds in a stealth tax (see link posted by KEG above)
• Annuity rates are very low
• Many funds were badly 'dented' in the 2007/8 financial crisis masterminded by the labour Government (Gordon Brown) whereby the value of many (previously thought fairly secure) investments was badly hit as Government finances and especially borrowing grew wildly out of control.  Many pension funds saw their value halve in that time.

I am not aware of any suggestions that Carrillion Pension Trustees have mis used any funds - actually many Pension funds are in much the same position.

You could argue that they did make bad investments - but all pension funds did much the same as it was uncharted territory having interest rates so low and 'quantitative easing' (whic is in effect printing money) happening.  I don't believe the investments seemed bad at the time - hindsight shows they weren't perhaps the right path.

[Whitebridges]

18 minutes ago, JohnfromUK said:

This mainly relates (I believe) to the "final salary" pension schemes (or defined benefit), now uncommon, but many legacy ones in place.

When a company grants an employee a pension amount based on his years of service and final salary, they invest money throughout his working career with the company to pay that pension.  This is the pension fund and pays the defined benefit.  The pension fund has trustees who are in charge of looking after and wisely investing those investments to ensure that there is enough money there to pay the estimated future commitments (i.e. the pensions promised) and in effect the pension fund carries the risk that there won't be enough money put away.  In recent times of low interest rates and poor annuity returns etc. MUCH more money is needed as investment to meet the commitments.  This 'extra' needed is the deficit. 

Those who are on a defined contribution type pension will build up a 'pot' based on the defined contribution which is usually a percentage of the salary.  When you retire, how much you get depends on how you can convert the 'pot' sum into monthly income, the traditional way being an annuity.  As we know, annuities are now giving very poor returns and many people will receive lower pensions than they hoped for as a result.  In this type of pension, the employee/future pensioner carries the risk.

I assume Carrillion has a defined benefit scheme that is (under present interest rates) underfunded to meet it's liabilities - hence the 'deficit'.

 

Final salary pension scheme? Are you serious? 

‘The management might have this but what about the workers?

[JohnfromUK]

6 minutes ago, Whitebridges said:

Final salary pension scheme? Are you serious? 

Yes quite serious.  A defined contribution scheme can't really have a deficit (unless contributions haven't been made, which would be an offence - and no one is presently suggesting that) ....... simply because the benefit (or lump sum pot size) isn't defined.

Deficits occur in defined benefits schemes where there are insufficient funds to meet the promises made of monthly/annual incomes.  MANY large companies offered these of all staff until relatively recent times (largely pre 2007 crash).

I expect (but don't firmly know) Carrillion operated such a scheme (certainly in the past).

Edited January 14, 2018 by JohnfromUK

[silver pigeon69]

3 minutes ago, JohnfromUK said:

The main 'top level' reasons (and many funds have deficits at present) is that the funds have failed to meet the projected growth expectations - and that more money is needed to generate monthly income than was expected.  There are various reasons underlying this are;

• Yields - interest rates (and related bond yields) are historically at their lowest EVER
• Growth was much reduced when the (labour) Government started drawing money out of peoples pension funds in a stealth tax (see link posted by KEG above)
• Annuity rates are very low
• Many funds were badly 'dented' in the 2007/8 financial crisis masterminded by the labour Government (Gordon Brown) whereby the value of many (previously thought fairly secure) investments was badly hit as Government finances and especially borrowing grew wildly out of control.  Many pension funds saw their value halve in that time.

I am not aware of any suggestions that Carrillion Pension Trustees have mis used any funds - actually many Pension funds are in much the same position.

You could argue that they did make bad investments - but all pension funds did much the same as it was uncharted territory having interest rates so low and 'quantitative easing' (whic is in effect printing money) happening.  I don't believe the investments seemed bad at the time - hindsight shows they weren't perhaps the right path.

Thanks John,

So basically bad judgement/investments and nothing illegal.

[JohnfromUK]

Just now, silver pigeon69 said:

Thanks John,

So basically bad judgement/investments and nothing illegal.

I have only read what is in the press, but there is no suggestion I have read of anything illegal.  Final Salary (or defined benefit) schemes commonly do have deficits at prsent for the reasons stated above (remember BHS as well, British Steel, I believe Royal Mail has a huge deficit in it's scheme).

[Whitebridges]

Don’t teach me to suck eggs. 

You don’t really know the exact terms of of the pension arrangements do you?  It is very likely some of the schemes terms and conditions would have been changed and 

new money purchase arrangements put in place for new workers for e.g.  

[JohnfromUK]

4 minutes ago, silver pigeon69 said:

Thanks John,

So basically bad judgement/investments and nothing illegal.

Remember also that much of a pension fund's money is invested in the stock market (index tracker funds etc.)

In 2007 before the crash, the FTSE index stood at about 7000.  In 2008 after the crash it had just about halved, so the 'value' of the investment had halved.

Only now (in late 2017) has the FTSE got back to pre crash levels, 10 years of expected growth has been 'lost'.  That is why many defined benefit schemes are in hot water.  What is more, the funds they have are worth much less in income due to the low interest rates and annuity rates

3 minutes ago, Whitebridges said:

Don’t teach me to suck eggs. 

You don’t really know the exact terms of of the pension arrangements do you?  It is very likely some of the schemes terms and conditions would have been changed and 

new money purchase arrangements put in place for new workers for e.g.  

Sorry, not trying to teach you to suck eggs.  I have no details of Carrilions  pension scheme other that what I have read, and that doesn't give much away.  I do know that many schemes were defined benefit (I was in one) and they have now got deficits for the reasons given.

[JohnfromUK]

34 minutes ago, Whitebridges said:

 

Final salary pension scheme? Are you serious? 

‘

From "The Telegraph" - Carillion has 13 final salary schemes in the UK with 28,500 members

[JohnfromUK]

The Today Programme is reporting that the liquidator has been called in as of this morning.

[old man]

20 hours ago, walshie said:

Spot on! 

Spot on times two.

Just illustrates perfectly the idiocy of the system?

Sadly, just as usual it will be the workers who suffer?

 

Edited January 15, 2018 by old man

[steve d]

15 hours ago, hambone said:

Having worked for a part of the Carillion group over the past 18 months I can't say that this is a shock. The levels of bad management, incompetence and cronyism has to be seen to be believed.   I do not think any private company should be bailed out by the government but hope the bulk of the workforce get toupee'd over to a new employer and the sub contractors carry on with the work as normal.

Toupee'd...that made me giggle?

[Mungler]

The knock on effect is going to be bad. If they have disclosed an insurmountable debt / black whole in their pension scheme then how much do we think is currently out there as a current trading debt i.e. money owed through other normal trading activities.

Also, when you liquidate a company, key staff start to drift off and the rest give up. So when the liquidator tries to recover current outstanding sums due to Carillion, those that owe money to Carillion will stop paying and know that if they drag their heels and delay, there's a good chance the liquidator won't have the funds, documentation or key evidence from relevant staff to make a recovery.

There are pension black holes all over the place and that is primarily due to people living longer and "old scheme terms" that you just can't find in the market place now - I know everyone jumps to the example of a final salary scheme being offered to someone at 55 years of age, but that's not it - average UK life expectancy in 1970 was 71 and it's now 82. That extra 11 years wasn't catered for in schemes written in the 70's and 80's and now there's not enough to go around.

However, companies that continue to trade and at the same time continue to pay returns to shareholders (in order to satisfy short term shareholder demands for a return on investment) that is a little like paying Peter instead of paying Paul.

What a mess with far reaching consequences for the whole sector and wider economy.

I heard the Post Office is in a similar position which is why the Government can't sell it. It's also why the likes of the Police and the wider Civil Service have had the goal posts moved on them.

[keg]

Agree Mungler, this won't be the last time we hear this, One of the reasons the Steel plant on Teeside ( name escapes me) got going again is because the workforce agred on pension changes. Better to have some than none at all.

[JohnfromUK]

45 minutes ago, Mungler said:

primarily due to people living longer

I agree with all you say, but think that the 'living longer' had largely been factored in by the actuaries - it had been predicted with advances in medicine and better living conditions, lower smoking rates, better diets etc.   The main problem to the schemes (in my view) has been the funds performing less well than expected - through a combination of the 2007/8 market crash, tax 'raids' on pension dividends (see Kegs posted link) and the lowest interest (and hence bond) rates ever seen.

But this is detail, your main point that many schemes are in difficulties and we will see more occurrences of this type of deficit is 100% correct and the Post Office example is spot on.

Remember also that the pension funds themselves are the biggest shareholders in many larger businesses, so expecting the shareholders 'to pay' is like trying to pull yourself up by your bootlaces!

Edited January 15, 2018 by JohnfromUK

[RockySpears]

Many Government schemes are still Defined Benefits, teaching for example.

  When my wife retires she will get  a proportion (according to her length of service) of her average salary over her last 3 working years.  Even as just a standard teacher, not management, she is looking at a Pension in the region of £25-30,000pa after 35 years service.

This does not relate to what she has paid in at all and any shortfall will be made up by the Tax payer.  The same for Police, Firebrigade etc etc.  It is for this reason that many of the terms are being altered to get away for defined benefits.

Crazily low interest rates and "Money Printing" by the Bank of England are going to bring many companies to their knees, Carillion is not the first and is probably just the beginnings of a series of major collapses on the way.  Companies have borrowed huge sums of money on very low rates, but have not invested this money in production or increasing productivity, instead choosing stock by-backs (basically buying their own shares to increase the share price), mergers/acquisitions etc.  Now this money needs to be paid back, and as interest rates creep up, paying this back will get harder and harder, until - Carillion.

 

RS

[neutron619]

4 hours ago, steve d said:

Toupee'd...that made me giggle?

I was hoping no-one else had noticed as I read through because I wanted to comment on it myself!

I pictured 43,000 folk merrily transporting themselves into new jobs on the back of a whole load of flying wigs.

Is it weird that, in my head, they all looked like Trump's "hair mat"?

Edited January 15, 2018 by neutron619
Spelling.

[Whitebridges]

Carillion collapse raises job fears.

Read all about it folks. What a complete fiasco.

http://www.bbc.co.uk/news/business-42687032

Well said Rehana Azam, national officer of the GMB union

"What's happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons."

 

Edited January 15, 2018 by Whitebridges